UMW HOLDINGS BERHAD - 2021 |
||||||||
| Report ID | 60538900368 | Popularity | 809 views 100 downloads | |||||
| Report Date | Oct 2021 | Product | ||||||
| Company / Issuer | UMW Holdings Bhd | Sector | Trading/Services - Conglomerates | |||||
| Price (RM) |
|
|||||||
| Rationale |
Rating action MARC has assigned a rating of AA+IS to UMW Holdings Berhad’s (UMW) RM2.0 billion Islamic Medium-Term Notes Programme (Sukuk Musharakah). Concurrently, UMW’s RM2.0 billion Perpetual Sukuk Programme (Perpetual Sukuk) has been assigned a rating of AA-IS with the two-notch rating differential between the two programmes being in line with MARC’s methodology on notching principles of subordinated and hybrid instruments. All ratings carry a stable outlook. The outstanding notes stood at RM1.6 billion under the Sukuk Musharakah and RM1.1 billion under the Perpetual Sukuk as at end-June 2021. Rationale The assigned ratings incorporate UMW’s (1) steady and sizeable market share in the domestic automotive sales that have continued to provide strong revenue generation, and (2) strong balance sheet that is characterised by a low to moderate leverage position. These strengths are primarily moderated by the group’s thin margins amid intense competition in the automotive industry. UMW’s long-term rating also incorporates a one-notch uplift for parental support from Permodalan Nasional Berhad (PNB), a government-linked investment company (GLIC) which has an effective interest of 61.29% in the holding company. UMW is a conglomerate with diversified businesses – automotive, equipment, manufacturing and engineering (M&E) – across countries in Asia. The automotive segment accounted for 78% and 84% of group revenue and earnings in 2020. Its Toyota, Lexus and Perodua marques collectively account for 52.8% of total industry volume (TIV) of 249,129 units as at end-1H2021. Aside from the automotive segment, UMW has a strong position in the equipment segment – comprising industrial and heavy equipment – through sales and leasing of Toyota forklifts and Komatsu heavy equipment. It is currently a key player in the domestic industrial equipment segment with about 50% of market share. UMW’s M&E division is the leading domestic supplier of original equipment (OEM) and replacement market (REM) products that include shock absorbers and motorcycle suspension systems. We view UMW’s ability to build and maintain a very strong reputation in the automotive industry stems from its longstanding involvement in the industry, its continued investments for capacity building and model upgrades, and the collaboration with key global automakers namely Toyota Motor Corporation (Toyota) and Daihatsu Motor Corporation (Daihatsu). UMW Toyota Motor Sdn Bhd, a joint venture between UMW (51%), and Toyota Motor Corporation and Toyota Tsusho Corporation (49% combined), maintains a steady domestic market share of 11.0% of TIV for its Toyota model and 0.2% for its luxury Lexus model in 2020. Meanwhile, Perusahaan Otomobil Kedua Sdn Bhd (Perodua), in which UMW has 38%-interest and Daihatsu group has 25%-interest, has a sizeable 41.6% market share in 2020, making it the leading player in the passenger car sales segment. We believe UMW’s automotive sales record has been and will continue to be well supported by the strong brand names, affordability of its passenger cars in the mass market segment and their historical reliability. In regard to chip shortage, we understand that UMW Toyota has been relatively unaffected as it has implemented an enhanced business continuity plan which requires stockpiling chips for up to a six-month period. In contrast, production of Perodua’s Myvi model which accounts for about 30% of Perodua’s total sales has been affected by chip shortage. Sales of its popular Axia and Bezza models are expected to moderate the impact from the production setback for Myvi. While we note that the recent spate of movement restrictions imposed to arrest the spread of the COVID-19 pandemic has had an impact on sales in 2020, performance rebounded in 1H2021 as these measures were eased. For 2020, group revenue and pre-tax profit declined by 18.6% y-o-y to RM9.6 billion and 46.9% y-o-y to RM400.7 million. However, revenue grew sharply to RM5.4 billion in 1H2021 (1H2020: RM3.6 billion) on the back of improved performance of its automotive segment that has benefitted from the sales tax holiday. Total group borrowings have continued to decline since 2018, standing at RM2.2 billion as at end-June 2021 due to repayment during the years. Adjusted debt-to-equity (DE) ratio was moderate at 0.47x but with sizeable cash and bank balances of RM1.5 billion, net DE stood at 0.22x. At the current levels, we view that the group has some headroom for further borrowings to fund expansions and operational requirements up to a DE ratio of around 0.60x for its rating band. Over the near term, its planned capex is deemed moderate at RM412 million p.a. in 2022-2024. This includes the RM270 million expansion of the Bukit Raja plant to cater for the local assembly of hybrid electric vehicle (HEV) models. At the holding company level, revenue consists of dividend income which ranged from RM230 million to RM630 million p.a. except in 2020 where a sizeable dividend of RM900 million was recorded. This was primarily the result of an internal restructuring exercise. The holding company’s leverage position has steadily improved but remained on the high side at 1.5x with borrowings standing at RM1.8 billion as at end-2020. Rating outlook The stable outlook reflects our expectations that the group’s performance will be supported by the rebound in its key businesses and broadly maintain its current balance sheet profile. Rating trajectory Upside scenario We do not envisage an upgrade over the next 12 months. Any upgrade will take into consideration sustained improvement in UMW group’s credit metrics, i.e. a DE ratio of 0.3x-0.5x and CFO debt coverage of 0.5x-0.7x. In addition, we expect to see some improvement in the holding company’s leverage to below 0.5x. Downside scenario Rating and/or outlook could face pressures if group performance were to deteriorate substantially below forecast and/or if the balance sheet were to weaken, in particular if the DE ratio exceeds 0.6x with no definitive plans to address the increase. Key strengths
Key risks
|
|||||||
| Related | ||||||||
